Trading US stocks not fine with Beijing

Editorial | Mary Ma 1 Nov 2021

Without much warning, Beijing suddenly put cross-border online brokerages in the crosshairs to make them the latest targets of an intensifying campaign that has already eliminated an entire industry in private tutoring and seriously crippled real estate agents offering intermediary services.

The rout hitting online brokerages including, market leaders Futu Holdings and Up Fintech, began with damning commentaries from a central banker and state media.

Futu and Up Fintech are both listed on the Nasdaq. Over the period since they were singled out for criticisms by the mainland, Futu's share price in the US has slumped some 37 percent.

Up Fintech - which is better known by the name of its Singaporean subsidiary Tiger Brokers - has also plunged more than one third in a stampede.

There's a sense of deja vu.

Wall Street-listed companies based on the Chinese concept have been subject to a battering, first because of Washington's trade war with China and, more recently, due to China's rapidly changing regulatory regimes.

As a result, many investors got burnt.

Why is Beijing aiming the gun at cross-border online brokerages this time around?

Officially, it's reported to be related to the mainland's newly introduced privacy data protection law that takes effect this month and the fact that cross-border online brokerages like Futu and Up Fintech are not licensed by Beijing to provide financial services in the mainland.

Although their Chinese clients invest in stocks in the US, Europe and other parts of the world via off-shore bank accounts, the central bank's financial stability department chief Sun Tianqi called these activities "illegal."

However, what state media or the central bank official did not mention was Beijing's probable mounting concern over the loss of capital to the outside as the central government tightens its grip at home and in Hong Kong.

As the tension between China and the US continues to escalate, Beijing leaders do not have the least desire politically to see mainlanders investing in US stocks to back Wall Street to hit new highs while those in Shanghai and Shenzhen pale in contrast.

The brokerages may plead not guilty as the transactions technically happen outside the mainland and involve external trading platforms and offshore bank accounts opened by their mainland clients.

The difference between now and then is that, if cross-border online brokerage was in the gray area with a blind eye turned, the criticisms show this has ceased to be the case and that it has become illegal.

With Futu listed on Nasdaq, it can be imagined that many of its investors are also Americans and they have been burnt as it fell from US$84.25 to US$53.51 and Up Fintech slipped from US$10.37 to US$6.47 over the period.

Perhaps what is missing in the fiasco is clear guidance for these companies to figure out whether they are indeed out of order and, if so, what they may need to do in order to get back into compliance.

It is in no one's interest to create so much uncertainty in the market by putting one company in the crosshairs this time and another in the center at another time.

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